Summer's Golden Opportunity - The Bottom is Near
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
I have been trading the gold sector for income since the late 90’s, and I’ve learned there is a pattern that repeats itself. Once recognized, it provides a major opportunity for short term gains. This opportunity is not meant for my long term buy and hold portfolio. But for me, it is perfect for trading prices moves in the one to three-month range. This is not investment advice. I am simply pointing out a consistent pattern that unfolds with impressive regularity. Should this pattern continue to play out, it would mean a major buying opportunity could be upon us in the precious metal sector.
For my trading account, there are two major buying opportunities per year in the precious metals sector that I focus on. One is in the winter, usually in December, and the other is in the summer-typically June or July. If I could only make two trades per year, these are the two I would make. You will see shortly the kind of price performance gold, and leveraged ETF’s that track gold and gold mining companies, have returned over the past few years.
On the chart below, I highlight each cycle, from beginning to end, with a rectangle. As you can see, there are two of these cycles per year. Gold tends to rally strongly beginning in December, flatten out during the spring, and then fall into mid-summer, only to do it all over again. The rallies out of these lows is the sweet spot for me. On the bottom of each cycle, I mark the duration from beginning to end. Since this is a weekly chart, each bar represents one week. You can see that they range from 21-30 weeks in duration, which makes sense if there are two per year.
See the rallies on the left side of each rectangle? That is the rally I, and my team at Wandererfinancial trade. I typically add leverage to this trade by using a 3X gold mining ETF such as JNUG. Using leverage can be catastrophic to an account if not used properly, but when used appropriately, I find it to be a very useful tool. To show you the kind of leverage that JNUG can provide over the price of gold, look at the chart below. I highlighted gold’s percent increase from low to high during that period, as well as JNUG’s during the same period.
3X ETF’s were never designed to be an investment. They are a short-term trading tool only. Like most leveraged trading tools, their price will decay over time, so buying them and holding for the long term is not a viable strategy. For levering short-term price movements up to a few months in duration, however, I find them very effective. At Wandererfinancial.com, we focus on a variety of indicators to catch the majority of each cyclical move in gold. We believe that another major opportunity is imminent, and we, and our subscribers tend to take advantage of it.